THIS month is notable for listed poultry companies, as two of them have announced plans to focus on other ventures. Both are selling their poultry businesses and the move is an indication of the challenges the industry faces.
One main issue remains elevated livestock feed cost, which in turn is due to the global increase in soybean and corn prices.
Two weeks ago, loss-making chicken egg producer LTKM Bhd proposed a reverse takeover exercise, where the company’s existing poultry business would be divested to its major shareholders and the listed entity would be controlled by an electronic manufacturing services or EMS player.
LTKM operates an automated layer farm in Melaka with over two million chickens on multi-deck housing systems that produce over one million eggs per day.
LTKM executive chairman Datuk Tan Kok says the proposed disposal comes amid the challenging operating landscape for the poultry industry brought on by overcapacity, low average selling price of eggs, high raw material prices, difficulty in controlling disease outbreaks on the farms and acute labour shortages.
LTKM had incurred losses in the financial years ended March 31, 2020 to 2021 and for the nine months ended Dec 31, 2021.
Meanwhile, on Wednesday, Sinmah Capital Bhd (SMCAP) proposed to sell its poultry business to focus on property development.
The group notes that its financial performance in recent years has declined, as its core poultry segment suffered from low selling prices of broiler chicken coupled with an increasing cost of poultry feed.
“In contrast to the poultry segment, the property development segment has been the major profit contributor to the group for the financial year ended Dec 31, 2021,” SMCAP pointed out in its filing with Bursa Malaysia.
SMCAP says the disposal proceeds would be earmarked for the group’s expenditure on its existing Taman Gambir Perdana mixed development project in Johor.
Adding to the pressure on poultry players is the government’s recent move to cap the price of chickens and eggs for periods of time to give consumers a reprieve from poultry-price inflation.
Other Bursa Malaysia-listed companies in the poultry industry include Leong Hup International Bhd (LHI), Lay Hong Bhd, QL Resources Bhd, Teo Seng Capital Bhd and CCK Consolidated Holdings Bhd.
Some of these companies have other businesses parked under the listed entity.
Lay Hong’s core business is the mass production of chicken eggs, liquid eggs, chilled and frozen dressed chicken, chicken parts and processed-related chicken products such as frankfurters, nuggets and fried chicken.
Lay Hong has three business segments, namely, integrated livestock farming, food manufacturing and retail business.
For the nine months ended Dec 31, 2021, Lay Hong posted a RM23mil net loss compared with a RM10.6mil net profit a year earlier, although revenue was marginally 3.1% higher year-on-year at RM708mil.
The group says the losses in the period was due to the lower production of processed chicken products as a result of the shortage of raw materials and manpower, coupled with the average selling price or ASP of table eggs remaining flat.
The high prices of raw materials also compressed its profit margins.
Lay Hong notes that it had rebounded into profitability during the third quarter ended Dec 31, 2021 due to cost containment and the improvement in the ASP of eggs and livestock.
Lay Hong also points out that the government had in February agreed to provide subsidies for farmers.
“With these subsidies in place, the group will be able to temporarily ease rising costs and to meet consumer demand,” says Lay Hong.
Meanwhile, Teo Seng is involved in poultry farming and the marketing of chicken eggs, the manufacturing and marketing of animal feed, egg trays, organic fermented fertiliser, and distribution of pet food and medicine, and animal health products.
For its financial year ended Dec 31, 2021, the group’s net profit dropped 28.4% year-on-year to RM3mil, although revenue was 10.8% higher at RM530.1mil.
Teo Seng says despite the higher revenue due to the improved selling price of eggs, its bottom line was impacted by the continued high prices of raw materials such as maize and soyabean.
As for LHI, it is one of the largest fully integrated producers of poultry, egg and livestock feed in South-East Asia.
For 2021, LHI saw a 24.5% year-on-year drop in net profit to RM85.4mil (versus RM113.15mil in 2020), impacted by the rise in raw material costs which outpaced the increase in the ASP of livestock feed, although revenue grew 18.4% to hit a record RM7.15bil.
LHI executive director and group CEO Tan Sri Francis Lau had said the company is proceeding with several initiatives such as the expansion of their aquatic feed products and the integration of their farm-to-plate business.
AmInvestment Bank Research says in a recent report that the longer-term prospects of LHI’s earnings recovery remain intact, premised on returning demand from hotels, restaurants and cafés as the economy reopens.
“The expansion of its downstream business-to-consumer channel to other operating countries beyond Malaysia could re-rate LHI’s earnings further,” says the research unit.
Meanwhile, the Lowy Institute, a think tank based in Sydney, Australia, says in a recent report that the disruptions to harvests and fertiliser production have driven up food prices since the Russia-Ukraine conflict started in late February, to the extent that world wheat prices have increased by 21%, barley by 33% and some fertilisers by almost 40%.
“Both countries produce grains that are used in everyday items including breakfast cereal, bread, pasta and corn syrup, and livelihood items such as feed for animal stocks, meaning the price of chicken and pork is set to increase as well,” says the think tank.
Recently, VietNamNet Global also reported that in the past year, the prices for raw materials for animal feed production in Vietnam have increased sharply, from over 20% to 50%.
The online news provider adds that millions of chicken farmers and hundreds of thousands of pig farmers in Vietnam are also facing higher bran prices and freight rates.